Banking evolution: how to take on the challenges of FinTech

Financial technology is shaking up the financial services industry in big ways. While FinTech provides a number of exciting opportunities, banks are also grappling with the challenges it brings. It has the potential for smart solutions that enable banks to operate more efficiently, at a lower cost, but FinTech is still emerging and evolving and companies aren’t yet sure how technology will disrupt their daily operations. As banks begin to embrace FinTech as a serious solution to meet the demands of their customers, as well as regulators, here are a few questions to consider.

How do banks implement financial technology and comply with regulatory requirements?

Since the financial crisis of 2008, banks have been bombarded with financial regulations. Banks must comply with regulatory standards in order to avoid paying hefty fees or facing legal penalties. Currently, the majority of financial regulations address traditional banking but as the world relies more on digital solutions, banks must apply the same regulatory standards to their digital banking practices as well or risk being out of compliance.

Regulatory technology, a derivative of FinTech, has the potential to help digitize regulatory risk management processes, saving time, money, and resources with greater accuracy than traditional processes. There are a number of RegTech solutions making their way into the financial services industry to address Anti-Money Laundering and Know Your Customer laws, as well as detect fraud. By embracing the digitization of financial regulations, banks can benefit by integrating technology into their risk management processes.

Will FinTech startups replace traditional banks?

Fintech startups, businesses specializing in financial technology, are disrupting the financial industry in big ways. They have several advantages that allow them to be more innovative and deliver services to customers more quickly and cost-effective than traditional banking institutions. It’s left people wondering if it means the end of traditional banking.

It’s highly unlikely that FinTech startups will replace traditional banks for a number of reasons. First, consumers still trust banks over startup companies to responsibly hold their money. Banks have decades of trust built through customer relationships and FinTech startups will have to be patient and earn customer trust over time. Another factor to consider is the important exchange between banks and FinTech startups through partnering with one another. Banks gain technology and insights through mergers, acquiring startup companies, or mentorship programs. While FinTech startups gain customer trust and market reach through such partnerships. Right now, both FinTech startups and banks are benefitting by coming together rather than competing in the market.

How do banks transition old legacy systems and implement new technology to stay innovative?

One of the biggest challenges banks face to implementing new technology is figuring out how to move away from their old legacy systems that have been in place for decades, on which their entire operations rely on. As companies grew so did the number of systems but they had trouble scaling, become increasingly complex. Imagine trying to remove a brick from the foundation of a house without disturbing the entire structure which the brick is supporting – that’s the challenge banks face when considering replacing their legacy systems.

There are several options for banks to consider when deciding how to implement new technology. One solution is to launch front-end applications for customers. Applications provide an easy, user-friendly interface that allows banks to stay relevant in the market. However, this option should be considered a quick-fix while substantial back-end changes take place at a slower, carefully calculated pace. Another option is for banks to dedicate one team to maintain their legacy systems while another team develops a whole new system – both teams work in tandem, taking baby steps in implementing new technology to overhaul the entire operations of their business.

Is cryptocurrency technology secure?

With the prevalent hacking of sensitive personal data, people wonder if cryptocurrency is subject to the same risk. One might think because of the decentralized nature of cryptocurrency there’s a greater risk for hackers to manipulate the system, however, that’s not the case.

The key to cryptocurrency security is in blockchain technology. All transactions are recorded in the distribution ledger, independently verified and shared with all users to create a secure, established record. Blockchain technology has the potential to safeguard against double spending, fraud, and currency reproduction.

What are the cybersecurity risks of FinTech?

As the world adopts the digitization of information, security breaches continue to increase. And due to the complexity of digital financial systems, banks are left vulnerable to attack. Cyberattacks are quite damaging to customers who may lose sensitive personal data and detrimental to the reputation of the bank, losing customer trust.

There are several ways financial companies can overcome the risk of cyberattack. Advances in biometrics, one-time and code-generated passwords are proving to be more secure than traditional passwords or security questions. Also, staying current on trends in security breaches and ensuring employees are properly trained to handle sensitive data can help protect banks against cyberattacks.

Is FinTech worth the investment?

Undoubtedly, there are costs and challenges to consider when it comes to implementing and keeping up with FinTech. However, FinTech offers incredible potential for banks to lower their operating costs and become more efficient, ultimately leading to better services for their customers. Those who don’t keep up with the rising demand of FinTech risk falling behind the advances of their competitors. The impact of FinTech to the financial services industry is imminent, it’s up to banks to decide how they’ll evolve to meet customer needs.